Drastic headwinds in the server business are spurring Hewlett Packard Enterprise ( HPE ) to take drastic action.

The company announced it would slash 3,000 jobs after a quarter in which excessive server discounting and mixed execution hammered profit margins. The cut equates to 5% of HPE's workforce.

HPE expects to save about $350 million from the layoffs.

"Obviously, it's a disappointing day," HPE CEO Antonio Neri told me in an interview on Yahoo Finance (video above).

HPE shares plunged about 20% in early trading Friday and closed down 12%. Shares of rival Dell ( DELL ) fell 2%.

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The company also materially warned on full-year profits amid expectations of more intense competitive dynamics in the server market. Tariffs — which are hitting the components that server players such as HPE, Dell, and Super Micro rely on — are expected to be a $100 million hit to HPE.

"The disappointment was on one specific metric, which was the server operating margins, which came below what the Street had in their consensus. And that had to do with the fact that we found a couple of issues that we could have executed better on. So it's on us and on me," said Neri.

The issues include "aggressive discounting in the traditional x86 business" and "devaluation of our inventory — it was not aligned to our pricing," explained Neri.

"And then on the AI side, we had higher-than-normal inventory related to parts like copper and so forth, because now the service providers and the model builders which lead with time to market with the latest technologies are moving to the latest generation."

Analysts wasted no time marking down their expectations on profits for HPE's current fiscal year and next fiscal year, Yahoo Finance data shows .

"HP Enterprise’s outlook is likely to add to the worries already on investors’ minds with price discounting in the traditional server market adding to the existing concerns around strong competitive intensity in AI servers as well as tariff-related cost headwinds that hardware and networking companies will need to navigate in coming months," said JPMorgan analyst Samik Chatterjee.

Chatterjee was among the analysts that cut their profit estimates.

HPE supplies technology to government agencies such as the Department of Defense, which is reportedly eyeing budget cuts . DOGE also lurks as a headwind to government contractors .

"No," Neri said when asked if DOGE has impacted HPE's business. "But obviously we have to wait a little bit more and see what happens next."

Earnings analysis: Weak margins = earnings miss

What else caught our attention: Tough outlook

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn